May 1, 2000

Pool Sharks

The April 11 press release touting George W. Bush's new health care plan promoted it as evidence of the Texas governor's heartfelt commitment to helping "families caught between poverty and prosperity." But the attached "contact list" hinted at a different sort of commitment. Usually such lists are stocked with think tankers and academics. On this one, four of the five contacts came from two lobbies representing small business: the U.S. Chamber of Commerce and the National Federation of Independent Business (nfib).

This was no fluke. While the debate over Bush's plan has centered on whether its $40 billion tax break is big enough to help the 44 million Americans without insurance (it isn't), the plan includes two other provisions, tailored to the small-business community, that have largely escaped scrutiny. One would vastly increase the use of Medical Savings Accounts, a reform that the Chamber of Commerce and the nfib have long championed. The other would pave the way for something called Association Health Plans, which would be created, marketed, and sold to small businesses by--you guessed it--the Chamber of Commerce and the nfib. Medical Savings Accounts and Association Health Plans are indeed good for small businesses; but they're bad for the uninsured. They might even worsen America's health care crisis. That Bush would make them centerpieces of his reform suggests that he is in the pocket of small-business lobbyists, that he shares their blind devotion to free-market ideology, or both.

In general, the point of health insurance is to get as many people as possible into one pool, mixing the sick and the healthy. The bigger and more diverse the pool, the more diluted the cost of insurance for the sick becomes. Healthy people pay a little more than they otherwise would, but unhealthy people pay a great deal less. And, since everybody risks getting sick eventually--if only due to aging--it's a fair deal all around.

But, because the United States doesn't have national health insurance, we don't put everybody into one big insurance pool the way most developed nations do. Various groups must buy insurance on their own, and their ability to obtain affordable coverage depends on their size. Large corporations have enough employees to keep rates low. But when one or two people in a small firm run up big hospital bills, rates for each employee can become prohibitively expensive. During the 1980s, this problem became acute. Subsequent state reforms helped improve the situation but didn't fix it completely. This is one reason more than 60 percent of Americans without health insurance today work for small businesses or have relatives who do.

Proponents of the Bush plan say Association Health Plans--under which a big trade group like the nfib would offer insurance to its members--will allow small businesses to enjoy, at last, the same economies of scale and bargaining power as big companies. Indeed, John Emling, the federation's legislative director, estimates that Association Health Plans would provide insurance to more than four million of the uninsured. But, in most states, small businesses can already pool their resources and buy insurance, as long as they abide by the state insurance regulations passed during the '80s to avert the risk selection that made health insurance so unaffordable in the first place. Bush would exempt Association Health Plans from those state regulations. And that's the catch.

Some of the regulations require insurance plans to offer basic, minimum benefits, like mental health coverage, to all subscribers; others actually require insurance companies to use money from less expensive customers to help subsidize more expensive ones. Without these regulations, small businesses with healthy employees would indeed see their rates drop. But the rates for small businesses with less-healthy employees would go up. Many would either drop coverage altogether or offer insufficient benefits. Meanwhile, rates for individuals purchasing insurance on their own would rise even higher (further diminishing the impact of Bush's tax credit for individuals who buy insurance), since the premiums from small business currently help subsidize coverage for individuals, as well. When the Congressional Budget Office sized up the idea in January, it concluded that Association Health Plans would add just 330,000 people to the insurance rolls--while raising premiums by two percent for small businesses that couldn't participate in the plans.

Medical savings accounts (MSAs) are similarly flawed. MSA users put aside money, tax-free, to cover their medical bills; at year's end, they get to keep what they haven't spent. (They must also each carry an inexpensive catastrophic plan that would cover costs above a few thousand dollars.)

Proponents of MSAs say the accounts discourage people from spending frivolously on health care, thus holding down costs and making insurance more affordable. In reality, MSAs simply allow people who expect to be healthy to opt out of larger insurance pools. Small businesses like the accounts because they transfer the onus for medical coverage more squarely onto individuals. But most experts who have looked at MSAs have concluded that, by further segregating healthy and sick in the health care market, they make it tougher for people likely to incur high health care bills to get insurance.

The Bush campaign doesn't deny this; in fact, it presents it as a virtue. Bush brags that his plan "will promote individual choice" rather than "nationalize" health care. He may honestly believe that the best way to solve the health insurance crisis is by empowering individuals and then letting the free market do its work. But, strange as it may sound, health care is one area of life where too much individual empowerment can be a bad thing. Left to navigate the insurance market without the protection of government regulation, the people who most need health insurance won't get it. Small business does have a problem, but the solution is a national health insurance scheme that puts employees of small businesses, along with everybody else, into one giant pool with equal rates for all. Conservatives, who instinctively believe the free market can cure almost every social problem, have a hard time accepting this. And that's why, at least on this issue, they're incapable of being "compassionate," too.